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Zainab Calcuttawala

Zainab Calcuttawala

Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

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The Fate Of Vision 2030 Rests On Saudi Aramco IPO


It has been two months since Prince Mohammed Bin Salman’s ascendance to the role of heir to the Saudi Arabian throne, and the preliminary effects of his aggressive economic diversification and anti-Iran platforms are beginning to show.

The influence of Bin Salman (widely known as MBS) on foreign policy can most readily be seen in Iraq, where Iranian support for the war against the Islamic State has carved out a special niche for Tehran. While Riyadh had been preoccupied with battling Shiite Houthi rebels in Yemen, Ayatollah Ali Khamenei and the Iranian government strengthened their commitment to a unified Iraq, free from ISIS and free from the threat of an independent Kurdistan.

But now the tides are changing. Emirati and Saudi politicians are making their rounds in Baghdad, rekindling old Gulf ties that have suffered since dictator Saddam Hussain invaded Kuwait in the 90s. Riyadh announced the inauguration of a new embassy in Najaf and sponsored Iraqi Sadrist leader Muqtada al-Sadr’s visits to the Arabian Peninsula, leading Iranian news sites to condemn the tours as a betrayal to the Yemeni people.

Sadr, who leads a Shiite movement that receives a majority of its support from the lowest rungs of Iraq’s socioeconomic ladder, also recently visited Egypt - a country allied with the KSA in its ongoing row against Qatar. Doha has been ostracized by its Gulf allies due to its close ties to Tehran in light of the gargantuan South Pars gas field, which it shares with Iran thanks to an unfortunate coincidence of geography. Related: Is Boone Pickens Wrong On Natural Gas?

But at home, it’s all about money, and all about oil revenues.

Domestically, revenues from non-oil services and goods dropped in the second quarter of 2017, but the policy trend overall favors its growth.

Oil revenues for Riyadh grew in the same period due to a new wave of crude production in the KSA. The monarchist regime turns measuredly more protectionist as U.S. shale production and exports continue to rise.

“Non-oil revenues are somewhat lower year-on-year in the first half of 2017 but should increase materially starting from 2018 onwards as fiscal reforms kick in,” said economist Jean-Michel Saliba in a Merrill Lynch note.

Non-oil revenue for the KSA is due to jump by $21.3 billion by 2018 because of the enforcement of a value-added tax (VAT) on luxury products and new fees on immigrant laborers who have brought their family members along from their home countries. Already, a lower tax on soft drinks and tobacco products has caused Riyadh’s revenues to lurk upwards in hot summer months.

By 2020, Bin Salman expects non-oil revenues to rise by $100 billion - a sizeable jump, considering Riyadh forecasted a total of $128 billion in oil profits for the government over the course of 2017.

MBS’ Vision 2030 plans depend on an extra couple hundred billion dollars from the Saudi Aramco initial public offering (IPO) in 2018. The IPO, the largest of its kind in financial history, would make just a five percent portion of the oil giant accessible to private investors. Still, the volume of the company’s assets guarantee MBS the capital he needs to retrain the Saudi work force, develop a services sector and tone down the influence of the fossil fuel interests. Related: Blockchain Tech Could Disrupt The Oil Industry

Oil prices have fluctuated in recent months and MBS has so far not been able to leverage his political savvy to use OPEC to stabilize world oil markets. This is not to say that fixing barrel rates is his responsibility per se, but the future monarch does pretty much dominate the cartel, which controls 40 percent of the world’s total oil production.

Overall, the crown prince’s control of the Saudi image in the Middle East has become clear over the past 60 days of his official title change.

The KSA also seems to be on track to meet its non-oil revenues benchmark for 2020, meaning MBS has a lot to be proud of already. But the future of his hallmark Vision 2030 plan rests in the success of the Aramco IPO. The final determinant of its success depends on market conditions the moment the company goes public.


So far, Brent rates hovering around $50 do Riyadh no good.

By Zainab Calcuttawala for Oilprice.com

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  • Kr55 on August 22 2017 said:
    Quite a scam Mohammed Bin Salman is selling to his people. Dream of non-oil revenue sources conjured out of thin air. High tech education and knowledge magically implanted in his peoples brains so they can get a good job. An IPO that will solve everything, even though it will only bring in enough money for 1 year of funding the pleasures of the royals and all their friends and family that live above the rest of the country.
  • Jeffrey J. Brown on August 22 2017 said:
    Excerpt from the 2012 book, "On Saudi Arabia" follows, and the scenario described below, to-wit, that "only one branch of this family of some seven thousand princes will have power," is currently taking place.


    What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder’s family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder’s two eldest sons after his death in 1953.
  • Refman on August 23 2017 said:
    I'm not sure I believe Saudi is willing to diversify away from oil, as Aramco continues to make announcements on huge investments in new refineries and other oil related projects.
  • JeffreyJ. Brown on August 23 2017 said:
    Re: Saudi Net Oil Exports

    Saudi Arabia showed a very high rate of increase in their net oil exports from 2002 to 2005 (total petroleum liquids), but their net exports have been below their 2005 level for 11 straight years, through 2016.

    It's interesting to consider Saudi net exports in light of case histories of other net export declines, especially in regard to rates of depletion in the remaining volume of net exports.

    The Six Country Case History consists of the major net oil exporters, excluding China, that hit or approach zero net oil exports from 1980 to 2010. The Six Countries, from 1995 to 1999, and Saudi Arabia, from 2005 to 2016, were both characterized by rising production and rising consumption, with a declining ECI Ratio (ratio of production to consumption) and declining net exports of oil, relative to 1995 and 2005 respectively.

    The following chart shows normalized post-1995 values for the Six Countries:


    Based on the observed initial rates of declines in the respective ECI Ratios (1995 to 1999 for the Six Countries and 2005 to 2016 for Saudi Arabia), Six Country estimated post-1995 CNE (Cumulative Net Exports) were 18 Gb and Saudi estimated post-2005 CNE were 60 Gb. In both cases, these extrapolations basically assume a perpetual rate of increase in production.

    Of course, Six Country production subsequently fell, and post-1995 CNE were only 7.3 Gb, about 40% of what the initial (1995 to 1999) projection showed. This has obvious implications for remaining Saudi CNE, when the inevitable Saudi production decline kicks in.

    There is another interesting similarity between the Six Countries and Saudi Arabia, in regard to the referenced time periods.

    Six Country net exports in 1996 were the same as 1999 (2.7 million bpd or about one GB/year). Saudi net exports in 2006 were the same as 2016 (8.4 million bpd or 3.1 Gb/year). The crucial difference between 1995 and 2005 and 1999 and 2016 is the rate of depletion in regard to remaining CNE, even though the respective annual volumes were the same.

    For example, the Six Countries shipped 14% of actual post-1995 CNE in 1996, and they shipped 24% of remaining actual post-1995 CNE in 1999, even though the respective annual volumes were the same. This is of course an accelerating rate of depletion. In this four year time period (1996 to 1999 inclusive), the Six Counties shipped 54% of actual post-1995 CNE.

    Saudi Arabia shipped 5% of estimated post-2005 CNE in 2006, and they shipped 10% of remaining estimated post-2005 CNE in 2016, even though the respective annual volumes were the same, which of course is also an accelerating rate of depletion. In this 11 year time period (2006 to 2016 inclusive), Saudi Arabia shipped about half of estimated post-2005 CNE.

    Note that given a finite remaining volume of Saudi CNE, it’s not whether, but to what degree, that we are seeing an accelerating rate of depletion in remaining Saudi CNE.

    In any event, it’s important to remember that the actual post-1995 CNE for the Six Countries were only 40% of what the initial estimate showed, using the same methodology that I’m using for Saudi Arabia.

    Note that their population increased from 25 million in 2005 to 32 million in 2016, as their total liquids consumption increased from 2.2 million bpd in 2005 to 3.9 million bpd in 2016.  Their net exports fell relative to 2005, even as production increased, because the increase in their consumption outpaced the increase in production.  Note that the ECI Ratio extrapolation for Saudi Arabia in effect assumes a perpetual rate of increase in production.  Given an inevitable production decline, their net export decline rate will really kick into high gear once they see a sustained production decline.  

    In any case, if we divide estimated post-2005 CNE at the end of 2005 by 2005 population and estimated remaining post-2005 CNE at the end of 2016 by 2016 population, estimated post-2005 Saudi CNE at the end of 2005 were 2,400 BO per capita and remaining estimated post-2005 CNE at the end of 2016 were 900 BO per capita.   For the sake of argument, if we assume that the Saudis sell their remaining CNE for about $75 per barrel, they would generate about $70,000 per capita from selling their remaining estimated total volume of CNE.  
  • Kevin on August 23 2017 said:
    When I read such articles which are pandering to the powerful and rich, it is evident that the authors have lost any objectivity and they are trying to vie for attention from these powerful people. Saudi Arabia is heading for trouble as its leisure seeking workforce cannot replace the foreign expats. If they try to do it, the productivity levels will drop. China's debt is becoming a big problems and soon they will start curtailing their oil consumption reducing the demand in the market. Saudis are naive to think that meeting with Iraqi leaders will suddenly bring peace to the middle east. Peace is going to remain elusive in that region and Saudi Arabia is going downhill.

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